Business, general

Discounted and per unit costs of product warranty

Article Abstract:

A detailed model of the benefits and costs to consumers and producers of product warranties is proposed. Three common varieties of product warranty contracts are considered: ordinary free replacement, unlimited free replacement, and pro-rata. Explicit allowance is made for randomness in customer repurchase behavior and for the chance that an independent damage process exists that acts on products sold under warranty. Cost criteria considered include: discounted costs and per-unit costs, and profits for each. The model is utilized for analysis of the trade-off between quality control and warranty, and to show the sensitivity of warranty expenses to environmental variables.

Author: Mamer, John W.

Publisher:Institute for Operations Research and the Management SciencesPublication Name:Management ScienceSubject:Business, generalISSN:0025-1909Year:1987

Repeated gambles, learning, and risk aversion

Article Abstract:

The analysis of a simple decision problem that involves repeated gambles is used to study whether utility functions can be applied to decision-making modelling in cases where learning is an important factor. The results of the analysis, which reveal that a high-risk initial decision is possible even under risk-averse utility functions, do not contradict standard expected utility theory. However, the results raise fundamental questions about the theory's application to certain kinds of decision problems.

Author: McCardle, Kevin F., Winkler, Robert L.

Publisher:Institute for Operations Research and the Management SciencesPublication Name:Management ScienceSubject:Business, generalISSN:0025-1909Year:1992